10 Myths About 529 College Savings Plans

Find out whether you should stash cash in one of these accounts

Myth: Only your states 529 plan offers you tax breaks.

Truth: Not necessarily, though your state’s plan may afford you tax breaks. However, “a handful of states offer ‘tax parity,’ meaning you may deduct your contributions to any 529 savings plan from your state income taxes,” says Gary Busch, a certified financial planner in Houston. Since several states—including California, New Jersey and Massachusetts—don't allow deductions for 529 contributions, and some states have no income tax, there may not be an incentive to stick with your state. Again, shop around. “The best plans are directly sold (no commission) and invest in low-cost index funds. Any tax advantages for investing in your home state's plan are usually less important than keeping your expenses low,” advises Busch.

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